CD40/CD28 costimulation blockade is a very effective strategy to prolong allograft survival. However, recipients receiving this therapy ultimately undergo late graft rejection, suggesting that costimulation blockade alone will not induce stable transplantation tolerance. In contrast, protocols that induce high levels of hematopoietic chimerism result in the development of robust donor-specific tolerance in adult animals. However, these protocols rely on the use of cytotoxic agents to deplete the recipient's peripheral immune system and or bone marrow to create "space" for the transplanted hematopoietic stem cells (HSC's). We have developed a novel protocol in which the donor's bone marrow is grafted as fragments of bone marrow matrix under the kidney capsule or in the subcutaneous space of the recipient. We have observed that these bone marrow grafts (BG) which contain an intact microenvironment of stromal and hematopoietic elements engraft and populate the peripheral blood circulation without the need for myelo-reductive agents. We find that when transplanted across fully MHC mismatched barriers in mice, the combination of CD40/CD28 co-stimulation blockade and BG can permit engraftment of these bone grafts and induce stable tolerance to a subsequent donor specific skin graft. The central hypothesis of this project is that the costimulation blockade/BG protocol can consistently produce engraftment of the bone graft, stable hematopoietic chimerism and stable transplantation tolerance via selective deletion of alloreactive T cells. In this project we will rigorously explore barriers to bone marrow engraftment, optimize strategies to overcome these barriers, and study the mechanisms of tolerance induced by this approach in mice. We will then integrate this knowledge into our studies in the pre-clinical Rhesus renal allograft model, with the goal of producing a tolerance induction protocol that is suitable for testing in clinical transplantation.